Contact Us
The Issues
Futher Reading
The Consequences
The Fix
Get Involved
About Us


The Consequences

There are many consequences to banks creating and destroying money.

Ultimately the system is unfit for purpose because the economy cannot achieve common sense goals like full employment, quality public services, efficient distribution of goods, stable house prices and the avoidance of excessive debt.

Some consequences, such as The debt crisis, unafforable housing and unemployment are obvious. However there are some more subtle consequences such as higher taxes, inflation, damage to the environment, extreme inequality, many of our social problems and even threats to democracy which can be traced back to our current system of money creation/destruction.

Find out more below.

Excessive Debt

Since almost every euro is created with an even higher debt it's no surprise that most developed economies are over-indebted. For there to be money in the economy there has to be a corresponding debt to the banks. If the economy reduces its level of personal and business debt, the money supply drops by the same amount.

Unaffordable Housing & The Mortgage Arrears Problem

House prices have very little to do with supply and demand as the chart below demonstrates.

The monetary system drives prices up because when banks are deciding what project to create money for it is in their interest to have the borrower's debt repayments supported by a real world asset. Hence banks are more likely to issue new money towards housing and building projects since the asset can be sold to reclaim some or all of the debt. This pushes house prices up, creates a bubble and leaves us in the situation whereby despite houses taking a matter of weeks to build they require two incomes almost their entire careers to repay.
The mortgage arrears problem was caused by the system also. Once the economy can't take on ever increasing amounts of debt the money supply starts to contract. Ultimately what's in circulation is the small amount of cash plus the partial principal of every recent loan. What's owed to the banks is the principal plus compound interest. It's just not possible for all loans to be repaid and this is the root cause of the mortgage arrears problem. Even if banks created money only for those with the highest credit rating it's still systemically inevitable that many in the economy will have to default. We cannot blame the banks for irresponsible or excessive lending. The banking system cannot behave prudently even if all the intentions to make it do so are there.


The system breaks down periodically and throws thousands into unemployment.

We always have work to do and people willing to work. The only thing we're missing is an adequate medium of exchange to bring it all together simply because not many are willing or able to organise a bank loan. If central banks were able to maintain an adequate supply of money all the time unemployment and job security wouldn't be an issue, unless we genuinely had less work to do in which case shorter working weeks and job sharing could become a reality. The chart below which was published by Social Justice Ireland shows how inadequate the system is at maintaining employment.

Higher Taxes & Poor Public Services

The printing of cash is demand driven so in the build up to Christmas, for example, banks exchange central-bank money for newly printed cash. Cash is printed at low cost and sold to the banks at face value, earning a profit for the central bank in the process. The profit from the sale of cash to banks becomes a form of non-tax revenue for the Department of Finance known as seigniorage. Prior to our use of computers at least 20% of the money supply existed as cash and the central bank's ability to print money was quite significant. With the decline in our demand for cash the government has lost this significant source of non-tax revenue due to the completely arbitrary use of electronic money. That's ultimately why the government is in a position whereby it's under constant pressure to invent new taxes and cut public services.


There are many causes of inflation but most economists would have to agree that it would be easier to control under a more permanent money supply monitored directly by the Central Bank. Our money is constantly being eroded through loan repayments and so we're constantly in a situation whereby it's better to create higher and higher amounts of money through new loans. These higher amounts are often issued towards houses prices which inflate as a result.

If we could reform the system new money would more likely be channeled towards products such that it would be less inflationary.

Environmental Damage

In order for the current system to run smoothly we need to continuously take on more debt than we repay and this is often accompanied by growth in what we produce. Growth of perhaps 2% each year in everything we produce may sound reasonable but in actual fact if something grows at 2% a year it quadruples every 70 years. We already have an incredible productive capacity and we cannot expect it to increase as described on our finite planet. Continuous growth as a basis of economic stability is an unnecessary policy.

As well as this it's not feasible for governemnts or the private sector to plan long-term renewable energy projects under the debt-based system.

Planned obsolescence, whereby products are designed to have a very limited lifespan, is a direct result of our debt-based system because it's just not feasible to run a business unless you have a constant income stream to service debt repayments. Planned obsolescence is detrimental to the planet.

Every country's attempt to become a net exporter adds pressure to produce more and sell it further away too.

Extreme Inequality & Social Problems

Ultimately over 90% of all euros have a corresponding debt to the banking sector. Although banks delete the vast majority of euros they receive through loan repayments the financial sector benefits greatly from the interest which must be paid on each euro it creates, or the assets which it acquires if not. It's now virtually impossible for an entrepreneur to start a business from savings and so those with access to sufficient bank credit become temporarily rich and the gap between rich and poor widens on a national level.

On an international level any underdeveloped country is so as a direct result of banks creating money as debt. Economies in which not many people are willing or able to get loans cannot compete with economies at different stages of this system which are going through self-perpetuating expansion of money and debt.

With extreme inequality, poverty and unemployment comes undesirable social consequences.

For a study on the systemic inevitability of growing inequality read Banking, Finance and Income Inequality by in the UK Positive Money.

For an analysis of the effects of extreme inequality on society The Equality Trust is one of many organisations that study this area. The chart below is one of many from their website.

Weakened Democracy

The banks are in a uniquely powerful position since they have the ability to issue and allocate new money. This power has happened through the loophole of their accounting entries being accepted as money. The power to create 97% of the European money supply has happened through arbitrary advances in technology and not through careful consideration by economists.

The central bank still has the power to issue cash for the government but it's an insignificant ability given the proportion of digital money in the economy. Our democratically elected politicians may have good intentions but are restricted in what they can achieve through a lack of money, and power to create it.

For further information you can read Banking versus democracy. It is written by our UK equivalent Positive Money and it analyses the effects of the banking system on the UK's democractic system.

Skills Shortages

Having banks create money equates to turning what would otherwise be a public good into a rent seeking and profit making activity. Over time, the reumeration packages available in the banking sector allures more graduates and workers away from productive sectors such as manufacturing, IT and engineering. This results in shortages of skills in areas of society where productive job creating capacity and true wealth generation is needed most.

A quote from a study by The Bank for International Settlements, Reassessing the impact of finance on growth, summarises our situation very well:

'Finance literally bids rocket scientists away from the satellite industry. The result is that erstwhile scientists, people who in another age dreamt of curing cancer or flying to Mars, today dream of becoming hedge fund managers'.

SM Logo Sidebar